Pip Spibey, ACMA, CGMA, has spent much of the past year integrating an acquisition that UK-based Travelport made to develop new digital services and mobile capabilities for the travel industry.
In June 2016, Travelport, a technology platform that enables travel agencies, corporations, and travel providers to search, share, buy, and sell travel bookings, acquired an additional 40% of Locomote, an Australian start-up that helps companies manage business travel worldwide from any device. The investment increased Travelport’s stake in Locomote to 96%, according to filings with the US Securities and Exchange Commission.
Spibey, Travelport Locomote’s CFO, said she didn’t expect any integration surprises following the deal. The two companies had worked closely together since 2014, when Travelport bought a 49% share in Locomote. All the legal and financial due diligence was completed. And Spibey had been finance director, financial planning and analysis, for Travelport’s European and global accounts for more than nine years before she headed Travelport Locomote’s finance function.
What she learned in the past year, however, is that the vast differences between a start-up and a large corporation should never be underestimated. “Everything is different, and as an embodied corporate employee for my entire [work] life, I underestimated the difference,” she said.
It’s a situation more CFOs might find themselves in this year. A Deloitte survey on global trends in mergers and acquisitions, which polled about 1,000 corporate executives and private-equity investors in September, suggests that M&A activities are likely to increase in 2017.
Three out of four respondents expected their M&A activity to increase, with 23% anticipating a significant increase in deal volume. Industry convergence, particularly companies buying technology assets, is projected to be a key driver of the rise in overall deal activity.
It stands to reason that divestitures are also expected to increase. Of the respondents Deloitte polled, 73% expected to sell units or assets over the next 12 months, up from 48% six months earlier.
Large divestitures that Fortune 500 companies announced in December and January were signs of the rising tide.
Just before Christmas, Walgreens Boots Alliance and Rite Aid said 865 Rite Aid stores will be sold for $950 million, and Anheuser-Busch InBev announced plans to sell its majority stake in Coca-Cola Beverages Africa, Africa’s largest soft drink bottler, for $3.15 billion. Sears Holdings started the new year with news that it is divesting its Craftsman power tool brand for $900 million.
Deloitte survey respondents were optimistic about deal flow in 2017 partly because they felt factors that could thwart M&A activity had diminished in importance.
Twenty-seven per cent said global market uncertainty could derail a deal their company may pursue, down from 32% six months earlier. Other top concerns were the interest rate environment (17% of respondents), down from 21% six months earlier, and anti-trust issues (7% of respondents), down from 12% six months earlier.
Survey respondents considered Britain’s vote to leave the EU an M&A driver. Forty-six per cent expected Brexit to accelerate deal-making in the UK, and 48% anticipated more deal activity in Europe.
Lessons learned integrating an overseas acquisition
As CFO, Spibey oversaw the operational integration of Locomote, which the finance function headed. A detailed document, which included finance, legal, HR, and IT requirements, assigned every task to a sponsor and a completer from each company, Spibey said. Challenges and solutions were identified in biweekly reviews to make sure all tasks were completed.
“[The integration] had to be done with as little disruption to the business as possible,” she said. “We also tried to make sure Locomote employees didn’t perceive that we were dampening the culture they had built and come to cherish.”
Most important for her as a CFO trying to integrate the acquisition was to listen and not rely too much on previous experiences to solve challenges; to avoid damaging what made the start-up special; and to remain flexible, she said. “Don’t get stuck in the corporate mindset that this is how we have always done it, so that is how it should be done.”
For example, as head of finance, she decided to change her ways. With her team, she reviewed all processes, picked them apart into bite-size chunks, and then put them back together in the way that best served Travelport Locomote.
Also important is regular communication with employees about what is happening during the integration period, Spibey added.
Top 10 integration mistakes
Even the best planned deal causes disruption during integration, said Scott Whitaker, a US partner with Global PMI Partners, a management consultancy based in Belgium. Here’s what Whitaker, author of the Mergers & Acquisitions Integration Handbook, suggested to avoid the ten most common integration mistakes:
- Start planning the integration 60 to 90 days ahead of the target close of the deal. Plans should include an integration strategy to help prioritise workstreams; complete operational, cultural, and risk assessments; and secure access to due-diligence documents.
- Ensure the company’s operating strategy and integration strategy are aligned.
- Prioritise workstreams to deliver the most business value. Assigning specific business benefit values helps prioritise workstreams. Reporting to senior management about the integration should focus on high-priority workstreams.
- Have integration managers and leaders report on progress and problems to at least one senior executive to ensure consistent focus and accountability.
- Create a communication plan that includes frequent updates for all stakeholders, communication drafts for senior executives, and an FAQ log that can be updated weekly and shared with affected employees.
- Manage programmes to achieve synergies – by stress-testing targets, confirming costs, and making synergy-related workstreams a high priority.
- Properly resource integration activities. This may require securing external resources to offload special projects.
- Develop a formal end-state transition process with anticipated timing and clarified roles and responsibilities, and document deadlines and deliverables with tasks that aren’t completed.
- Clarify the business strategy and operating principles of the post-integration company as soon as possible.
- Collect feedback from all stakeholders to continually optimise the integration process.
—Sabine Vollmer (Sabine.Vollmer@aicpa-cima.com) is a CGMA Magazine senior editor.